This blog is third in a series of insight pieces for chairs and boards and provides perspectives on how to enable organizations to thrive when uncertainty becomes the new norm. The first edition – ‘How to thrive when uncertainty becomes the new norm for governance’ – set the scene. This was followed by a second edition, focusing on the role of boards in navigating the geopolitical landscape. This third edition explores the evolving expectations of organizations and their boards with respect to social impact, and how boards can steer their organizations towards meaningful societal contributions and enable long-term success.
The imperative for organizations to consciously consider their social impact is increasingly evident. In recent years, there has been growing recognition that organizations have a responsibility not just to their shareholders, but to each of their key stakeholders, including society. But what does that mean and how can chairs and boards help drive an appropriate focus on this?
Descriptions of what is meant by social impact vary – but in one succinct definition, it is referred to as the positive or negative effect that an organization has on individuals, community and the broader society. It encompasses a range of factors including social equity, community development, ethical labor practices, human rights, health, education and climate. And it incorporates both the impact that an organization has in executing its core business activities as well as additional, more philanthropically focused activities.
As organizations continue to navigate economic, environmental, and social challenges, the relationship between business and society is becoming ever-more entwined and interdependent. The IMF recently reported low growth of 3.2% in the global economy for 2024, with a similar prediction of 3.3% for 2025. This came with a stark warning that prolonged, slow growth can lead to increased social inequity, which, in turn, contributes to global instability. Against this backdrop, there is also acknowledgement of the increasingly diverse stakeholder landscape and evolving expectations regarding organizational social impact. Consumers and employees are increasingly favoring organizations that demonstrate good corporate citizenship. Millennials and Gen Zs are seeking workplaces that demonstrate values aligned with their own, and – whilst not consistent across the world – many governments, authorities and regulatory bodies continue to turn up the dial on compliance requirements related to environmental, social, and governance (ESG).
As a consequence, the business case for creating positive social impact is strengthening as organizations increasingly recognize that their success is linked with the prosperity of the broader communities and stakeholders that they serve. In recent years, some research has suggested that the line between profit-driven and purpose-driven organization has blurred as organizations with a strong purpose-driven mindset outperform other organizations. This link is reinforced when the relationship between organizations who embrace “social responsibility” and their performance is explored (also see this article and this one).
Prioritizing social impact, therefore, may lead to additional benefits such as enhanced reputation, strong customer loyalty, increased employee attraction and retention, and new market opportunities.
The role of the board and the chair
Social impact is not only a core element of business and organizational resilience, but can affect reputation, trust and strategic advantage, each of which are key aspects of the board’s stewardship role in ensuring long term success.
The board’s role begins with ensuring appropriate oversight and stimulating the right discussions with executives, ensuring that the organization’s strategy and purpose is clear and that it incorporates the type of social impact the organization seeks to have. Board members play a key role in setting the tone for social impact within the organization. Their personal commitment, reflected in their behaviors, actions and decisions, can influence a culture that prioritizes social impact.
The chair of the board plays a key role, not only in setting the board focus and agendas, but also because they are often seen as the “conscience” of the organization. As chairs of boards, your leadership in this area is critical to bringing the organization’s purpose and commitment to social impact to life.
To do this effectively, there are a number of aspects to consider, including the following:
1. Taking stakeholders’ perspectives into account
A primary responsibility of the board is to help ensure that the diverse and sometimes conflicting needs and views of different stakeholders are understood, considered and addressed by executive leadership. The boards’ approach to guiding and challenging executive leadership is key here. Appropriate engagement with key stakeholders is crucial to determine if an organization’s social impact goals consider their perspectives and ultimately that business operations have a positive impact on the surrounding societies, communities and environment.
It’s imperative that boards take all stakeholders into account in their decision-making. This means also having a clear understanding of the risks and opportunities related to social impact, and how the choices they make can help future-proof the companies they serve, for the benefit of wider society.
– Feike Sijbesma, Chair Philips, Former CEO DSM, Founder Darwin International
Chairs should consider the mechanisms in place within the organization for understanding the stakeholder map and for gathering and analyzing the feedback from the right range of stakeholders. These might include shareholders, employees, customers, suppliers, regulators, relevant subject matter experts, and community groups.
Integrating these views into the executive’s strategic considerations and the board’s decision-making and is then key to underpinning the continued success and resilience of the organization.
2. Embedding social impact into strategy
For social impact to be effective, it should be integrated into an organization’s strategy rather than treated as a separate initiative. This often requires a shift from viewing social impact as a peripheral activity to recognizing it as a core business imperative.
“When an organization embeds social impact as part of its overall strategy, it is transforming purpose into action and creating value not just for itself but also for society as a whole. This alignment not only serves to strengthen an organization’s reputation, but if executed effectively, offers a real competitive advantage that supports long-term success.”
– Mike Canning, Deloitte Global Strategy, Innovation & Public Policy Leader
Every organization likely has particular aspects of social impact where it can make the most impact, driven by its industry, capabilities and business model. The organization’s strategy therefore needs to align core operations with specific social impact goals, so that day-to-day activities contribute to these goals and achieve an overall net positive social impact. To amplify positive social impact beyond the organization’s primary business activities, the strategy may also incorporate wider goals which leverage the organization’s inherent skills and capabilities. The board should encourage management to engage in discussions that explore how these dual aspects of social impact can be incorporated into strategic decision making and effectively integrated throughout the organization.
Impactful boards tend to take this one step further, by taking an active role in guiding executives in their setting of social impact goals, ensuring that the goals target those social issues where the organization can have most impact and that there is alignment with the organization’s purpose and values. In addition, they also challenge executives to identify areas where the organization can leverage its influence and scale to create a broader purposeful impact, and to develop initiatives that can set the organization apart from its competitors. Examples might include:
- Assessing social impact of business: understanding the impact that the organization’s current business models, practices and activities have on surrounding communities and societies, identifying areas that need improvement and developing a robust action plan for these.
- Diversity, equity and inclusion: increasing representation of underrepresented groups in leadership positions and decision-making roles.
- Community development: investing in local communities through initiatives that support job creation or enhance skills and education.
- Ethical supply chains: setting expectations that suppliers will adhere to fair labor practices, environmental standards, and human rights.
- Product innovation: developing products or services that directly address social issues or provide access to underserved communities, such as offering more affordable products, extending distribution of supply chain, or developing enhanced technology.
- Exploring partnerships: collaborating with other corporates, non-profits, government agencies and social innovators, to amplify social impact by combining complementary skills and capabilities.
Consequently, chairs and boards need to actively champion the integration of social impact activities into their organization’s core business strategies, ensuring that both operational and broader societal impact goals are aligned and fully embedded.
3. Managing organizational risks associated with social impact
The board is responsible for overseeing the management of both inherent and specific strategic and organizational risks, and, in this context, the risks that social factors may present.
This includes risks that may arise from changes in societal expectations, cultural shifts, or failures to meet ethical standards and can have a damaging impact on an organization’s reputation, operations, performance and even its long-term success, if not effectively managed. Examples include poor labor practices, lack of diversity and inclusion, human rights violations, supplier ethics issues, environmental or climate impacts, or protests and activism. These risks can escalate very quickly in today’s hyperconnected world.
Boards are increasingly asking for more specificity concerning the material social issues facing their organizations and the risks and opportunities that accompany them. The board’s focus may include activities such as:
- reviewing management’s processes for identifying and assessing social risks;
- challenging executive’s mitigation strategies;
- receiving periodic reporting from management on these risks and mitigations; and
- discussions regarding emerging and evolving social risk factors.
Embedding these aspects into the board’s agenda, or the focus of a committee of the board, is imperative to help facilitate an environment where the chair and the board can continue to execute the appropriate risk oversight, underpinning the protection of organizational resilience.
4. Reviewing board agendas and constructs
Demands for board time and the complexity of the board agenda continue to increase and finding sufficient time for emerging matters can be a challenge.
Chairs and board continue to need to be deliberate about the prioritization of matters for board focus and see that there are the appropriate supporting structures and committees to enable deeper debate in sub-teams or groups with the necessary skills and capabilities relative to individual aspects.
When it comes to social impact, an assessment of governance arrangements, structures and processes, can help to provide clarity on where aspects of the organizational strategy and resilience, relative to social impact, is governed. Depending on the nature and extent of an organization’s social impact activities, the board may consider including social impact within the remit of a board committee to ensure the topic receives adequate attention. Boards also need to consider if their composition (and that of relevant committees) is optimized to enable them to understand their stakeholders, truly embed social impact into strategy, and demonstrate commitment to their purpose. Where relevant, appropriate board education may be helpful, providing context and instilling confidence in board members to enable questions to be asked in the boardroom, challenging and supporting the executive in this area.
5. Measuring impact and embedding management accountability
Being able to assess the extent of social impact is an important element of the monitoring of progress. Challenges exist to develop metrics which are appropriately calibrated, reliable and robust. For the board, therefore, understanding the identification of appropriate metrics, their genesis and calculation is important to feel confident about their relevance and reliability, and to assess progress.
Further, clear communication of achievements and challenges in social impact initiatives helps maintain stakeholder trust, shows that the board takes their views seriously, and helps set the example for other organizations.
Accountability will underpin the achievement of the positive social impact that our organizations aim to achieve. The board will need to see that clear responsibilities have been set for management for the delivery of social impact initiatives and outcomes as one aspect of the organization’s strategy. This means, in the same way as for other performance objectives for executive leadership, board activities such as:
- considering whether executive level compensation should be linked to social impact metrics;
- setting measurable social impact targets, tied to the goals the organization wants to achieve;
- regularly reviewing performance against these targets; and
- ensuring that the organization is transparent in its reporting.
Conclusion
Chairs and boards, now more than ever, have a critical role to play: as stewards of their organizations, being an enabler of organizational success, and protecting organizational resilience.
We must continue to take a proactive approach to enhance the reputation and trust that underpin our organizations. As stakeholder expectations continue to grow and more overtly demand action, the board’s role in social impact becomes increasingly important and hence it must be embedded as part of the overall organizational strategy and an important part of the board’s core agenda.
By overseeing and productively challenging executive leadership as they embed social impact in their strategies, our boards can enable their organizations to thrive in an ever-changing world, where social impact and business success are becoming inextricably linked. Further, it is in this way that we can deliver on our responsibilities and play our part to enable a sustainable future for all.